Category Archives: Family Businesses

Are You Aggressive Innovators, or Defenders of Status Quo?

Our world has sped up. The demand for faster, “instant,” responsive products and services drives business competition for customers. A computer, for instance, with a faster processor is worth more than one with a slower one because faster page loads mean either a more enjoyable gaming experience or work productivity. Consequently, a higher price can be charged for a faster computer. In many markets, people are willing to pay a rush charge for added convenience or quicker availability. Why is the need for speed, then, missing in typical product development efforts? My friend, Jeffrey Phillips, addressed this issue with a recent blog post:

Three innovation clockspeeds

The pervasive lack of enthusiasm or even awareness of time in regards to innovation is a constant source of amazement for me.  In organizations transfixed by time, speed and efficiency, innovation and product development are often the slowest out of the gate, the longest efforts to accomplish and seem completely unrelated to the real world. There are, of course, reasons why innovation is slow:
  1. Innovation is uncertain and risky, so organizations try to move slowly to reduce risk
  2. Innovation (if done well) is often ahead of the market, so organizations try to time innovation to market needs and demands
  3. Innovation requires tools and techniques that are unfamiliar, which slows the process
  4. Innovation and subsequent product development processes are sclerotic, like blood vessels full of plaque, stuffed with unimportant but time consuming activities.

My stipulation is that you should do innovation as fast as humanly possible, even at the risk of skipping steps or bypassing checkpoints, because your internal clockspeed is almost certainly out of synch with the market’s clockspeed.

Your internal clockspeed

Your clockspeed (how fast your organization works) was set by management – this means that your clockspeed is relatively high when working on (the) familiar … and very slow otherwise.  Your operating models slow innovation down at exactly the time that they should be speeding up.  The strange thing about internal clockspeed is that it is similar to the weather – everyone complains about it but few do much about it.  

Clockspeed

External market clockspeed

Your markets are likely moving faster than your internal processes, since the markets are subject to competition, new entrants, substitutions and other factors that Porter and others made famous.  The real problem is innovation clockspeed.

Innovation clockspeed

If you compete in a lucrative market, there are a host of firms innovating right now, seeking to disrupt your market, create substitutes for your product or to simply replace the need for your product or potentially your market.  Clockspeed isn’t simply about bringing a new product to market faster, but about making the product or market obsolete or unnecessary.  

Getting obsolete faster 

Nobody cares about how efficient or fast your existing processes are to provide existing products and services.  What will differentiate firms in the future is an accelerated ability to innovate, at least as a fast follower if not an innovation leader, carefully tracking the external market clockspeed and anticipating innovation clockspeed.  

The challenge — should you choose to accept this mission, is to synchronize the clocks! Within your organization, take a long hard look at impediments to rapid prototyping. Examine systems that disincentivize risk taking and experimentation. Determine how to reject more ideas faster so that your organization is known for the rate of idea generation and implementation rather than the amount of time taken to vet one idea at a time. 

Private Equity Challenges in Family Businesses

Most family owned businesses survive through the ingenuity, hard work, and resourcefulness of the founder(s) in the first generation. As the founders grow older and the business hits certain barriers to growth, often there is a need for a capital infusion to satisfy the goals of the founders and the other stakeholders in the continued growth and success of the business. Private equity, while a viable option for many privately owned businesses, can be perceived as a solution that is unworkable for the typical family owned business because of the fear of loss of control. In an article last year in the Journal of Family Business Strategy (Volume 3, Issue 1, Pages 38-51, March, 2012), authors Florian Tappeiner, Carole Howorth, Ann-Kristin Achleitner, and Stephanie Schraml describe some research they performed on a group of family firms in Germany. The research focused on issues these firms faced in soliciting private equity investment. Excerpts are provided below, along with a diagram, and accompanied by some commentary:

Under the pecking order hypothesis, private equity is a finance of last resort. Tests of the pecking order and its assumptions have provided conflicting results. For family firms, the pecking order hypothesis is incomplete because it ignores family effects. Case studies of 21 large family firms in Germany are analysed. Testable propositions are derived. Family firm owners balanced financial and non-financial resources of private equity with the need to cede control rights. Non-financial resources were valued more highly when resolving family issues. The observed pecking order was driven by control rights. Important implications for family firms and investors are discussed.

The authors articulate that private equity is perceived as a final option for owners of family businesses. No surprise there. Control is seen as the most important factor in determining what outside resources to enlist. Private equity is seen as less widely used than non-financial resources when the goal is to resolve family issues.

Family and business influences are equally important in terms of the demand for private equity in large family owned firms. Private equity was sought out for reasons that included the exit of a sibling, parents’ wealth diversification and business growth. The authors note an “interdependence of demand and supply in financing decisions, most noticeably in the negotiation of control rights, which featured strongly in the interviews. (Sometimes the underpinning reason for seeking an investor was to consolidate control, for example, buying out a family member with conflicting views or concentrating ownership in one branch of the family, which, it was argued, would free up decision making within the family firms.)”PE Finance in Family Firms

Minority private equity investments provided study participants with needed finance while allowing the family owners to maintain family control. Private equity also provides managerial resources. The presence of outside money and potential ensuing leverage in executive decision making illustrates the potential for better corporate governance practices and enhanced expertise to pursue business opportunities, such as IPOs or globalization. Said the authors, “Firms with family issues may value the non-financial resources that private equity investors may provide. In particular, family firms wishing to reduce family conflicts may value the neutral or professional role of a private equity investor.”

It was noted that business performance issues led to loss of control in two of the family firms receiving private equity infusions. Still others negotiated control rights guidelines aggressively because of their concerns over the potential of such an occurrence. The investors, for their part, acknowledged that dealing with family firms presented a unique set of challenges usually not experienced in other deals.

Overcoming Business Failures With Mentoring

 

According to Bill Warner, co-founder of EntreDot, approximately 26,000 new companies are formed each year in North Carolina and, in that same year, over 23,000 companies fail due to poor management and operational mistakes. Warner further states that, “The statistics are worse in rural and minority populations. This means that good ideas go to waste along with the grant and investor funds that helped get these companies started. As a result, the potential growth of revenue and new jobs is lost also.” These comments are very similar sentiments to what Dun and Bradstreet found in some surveys conducted during the period of 2007 – 2010. D&B found that the rate of business failure went up by an average of 40% during the recession years.

D&B SMB Lowest Failure Rate by State 2010

 

Many of the states with lower failure rate increases are less heavily populated states. In fact, of all the states that have seen a decline in the rate of small to medium sized business failure, only North Carolina makes the list of 10 most populous states in the country. Of states (below) with large increases in failure rates, only California is heavily populated.  

D&B SMB Failure Rate by State 2010

 

 

 

From 2007 through 2010, Western states in the West had the highest increase in failure rates. Reasons D&B provided for the uptick in failures include continued instability in the residential housing market and drop-off in the tourism, travel and hospitality sectors. Interestingly, Tennessee has been home to the highest small business failure rates for four years in a row.  

D&B Largest SMB Industries 2010

 

These trends have been occurring at a time when the number of retail establishments and corresponding retail employment have both dropped by 15-20%. On the other hand, the number of SMBs in the Business Services category more than doubled and these businesses experienced a 30% increase in the number of people they employ. The fastest growing industries for SMBs are summarized below:

D&B Fastest Growing Industries 2010

 

As you can plainly see, nothing else comes close to the growth of  the Business Services category. Bear in mind that many software as a service companies are part of this category and have been launched in only recent years. The macrotrends that become evident are that retail is on the wane, highly populated states are more stable in terms of business failure statistics, and the business services category’s growth will be a key cog in the engine of our economy.

Warner points to the following issues of significance to these small businesses:

  • Business strategy and planning to make sure their business is focused on a viable market with a winning product and/or service that has a competitive edge
  • Forecasting and financing ensuring that sales forecasts are realistic and that revenue, cost, expense and cash are well managed
  • Operational discipline and judgment to increase the chances of success by making fewer mistakes
  • Industry connections that can help accelerate the business and its operations
  • Start-up company experience that can instill the wisdom of what it takes to really start and manage an emerging business

 

He feels that these companies need the dual combination of basic business know-how and mentoring. The situation in North Carolina, where Warner and I live, is that our state has a comprehensive array of entrepreneurship education programs throughout the community college and university systems including various other private and public organizations. The problem is that we have little help for entrepreneurs once they have completed these programs and actually try to start a business. We recommend assistance for entrepreneurs who are struggling to create successful businesses, the failures should decline considerably. Entrepreneurs should be seeking out business mentors that can help them through the early years of their business.

 

Get Emails Read – Follow 7 Guidelines

Most businesses rely on emails for the majority of their communications. Yet, most of us are certain that some of our emails are ignored by the recipient. If you are trying to get your emails read, consider the below guidelines offered by Jonathan Borge of ToutApp. (Borge was contacted by Tom Searcy for a recent article for Inc.com on the subject.)

1. Subject lines: Remember that only 20 percent to 40 percent of your emails will actually get opened, though most of your subject lines will be seen. To boost your open rates, think of short, catchy, and informative subject lines. You should try to dangle compelling information (“The future of sales emails”), and you can even try adding some mystery (“Strange question”). We also recommend personalized subject lines, if possible (“Hunter Sullivan suggested I contact you”).]

2. Your tone: Portray yourself as someone that other people can connect to. You’ll want to show your recipients that you care about hearing back from them… so you can’t simply sound like you’re just sending another mass email. Never use “Dear sir or Madam,” and stay away from overly formal language.

3. Email content: Make your emails short, simple, and easy to quickly digest. Your leads are busy people with jobs, too, so you need to maintain their interest. Do your research and find out what resonates for your prospects. Try to get an introduction to them or, if that’s not possible, figure out in more detail what they or their company do. Tell them why you’re emailing them, specifically. Talk about how you can solve a problem for them.

Email

4. Your sign-off: End your emails with a definitive, clear call to action. Make it dead simple for your recipients to say yes—whether it’s to a meeting, phone call, or product demo. Don’t ask them for permission. If you want a phone call, then say “Call me right now at X for more details.”

5. Your timing: Reach out to your leads when they’re not too busy. Make sure you avoid heavy traffic times like Monday mornings. Based on our tracking data, we recommend the middle of the week, mid-day, as the best time to send emails.

6. Your image: First impressions are important both in person and online. The tone and formatting of your email is all your recipients have to judge you by. Make sure you are being professional, clear, and easy to understand. Stay away from over-formatted emails that look gimmicky, but don’t hesitate to call out important information in bold or bullet points.

7. Your homework: Send yourself a sales email. Put yourself in your leads’ shoes. If you were them, would you open this email? Would you spend more than two seconds reading it? If so, what would you do next?

Searcy notes that the list sounds almost too basic. Yet, when he went back and examined the last 10 recent emails he had sent to prospects and clients, he found that he only employed four of these guidelines on average per email. Why don’t you take the same challenge? Hopefully, you can learn from it –as he and I have!

 

 

Soft Skills Matter in Business – Even if Not Measurable

Throughout my career, I have had the opportunity to work alongside some brilliant co-workers and clients. Whether it has been inside a public accounting firm, or as an advisor to engineering and construction companies, I am often surrounded by folks with strong technical skills. Since my role has usually involved organizational development, strategy, or marketing and business development, I have heard time and again how “soft and fuzzy” topics such as relationships, emotional intelligence, and creativity and communication are less needful than the technical skills.

Susan Mazza, who writes a blog entitled Random Acts of Leadership, recognizes the dichotomy of “soft” versus “hard” skills in her recent post, “The Power of Soft.” She states in the post that, “the very need to distinguish “soft” vs. “hard” speaks to a paradigm that has long revered hard results as the only ones that really matter. Unless something can be quantified and measured the underlying belief is that it is somehow less valuable and hence of lesser importance.”Soft vs hard skills

Whether I have been in conversations with a CFO, a business owner, or a  VP of operations, I have heard over and again how that which cannot be measured must be insignificant and pale in priority. Mazza references a recent TED Talk by Dr. Brene’ Brown, “Leaning into Vulnerability” in which Brown shares how one of her research professors once stated, “If you cannot measure it, it doesn’t exist.” Mazza observes that many with advanced degrees subscribe to a scientific framework that assumes “measurable” is the only test for “real!”

Dr. Brown’s talk about vulnerability addressed the effort to view “soft” subjects with “hard” data. New insights have prevailed that challenge the long-held distinction within the business world of the value of each category of skills. Mazza’s view of the new awareness is that, “in our relentless pursuit to collect and analyze data, we all too often ignore the most important measure of all – our senses!”

The behavior we see and emotions we feel, according to Mazza, are the source of the most powerful tool we have as leaders and mangers – our ability to observe. She observes the following:

You have probably heard the phrase, “the tension was so thick you could cut it with a knife.” Can’t you feel that tension? How much productive work gets done when that kind of tension is present? Yet we often grind through what we see and feel through simple observation, knowing both the experience and the result are going to be less than satisfying.

Would having a mood Geiger Counter to assign the tension a number really make any difference?

By simply observing the mood and the impact it is having on your ability to fulfill your commitments, you are able to take action to make a difference in any moment. How to take that action is, of course, another subject.

The point here is the real power of soft comes from our innate ability to observe. So perhaps it’s time to give up our attachment to measuring all things and the belief that, “If you can’t measure it it doesn’t exist.”  Why not start  learning to better use the tools we have been born with – our senses – as an access to improving relationships, enhancing performance and creating great places to work?

The ability to navigate through tensions, create win-win scenarios, and build esprit de corps comes not from technical, “hard” skills, but from those soft and fuzzy assets that many C-suite executives and business owners underestimate. Think about your own organization and how greater respect for soft skills could make it a better place to work, where senses are valued equally with data and relationships that build goodwill are put on a pedestal.